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Customer costs are those associatcd with serving customers regardless of the amomlt of water <br />used, i.e., meler reading, accounting, Uilling, etc. <br />'1'he allocation of cost between base and extra capacity components depends upon the design and <br />tise of the particular portion of t]le water system being analyzed. If an asset of the water system <br />is designed to meet ouly the average demand on the system - a raw water supply reseivoir for <br />instance - tlie capital costs and operation and maintenance costs for that asset are totally allocated <br />to the base component. If the asset is designed lo provide additional capacity which is needed to <br />provide peak demand on the system, the capital and operating costs associated with the asset are <br />allocated to Uase and extra capacity components in the same proportion that the capacity of the <br />asset is used for averabe and peak use. The appropriate allocation factors Uetween Uase and exha <br />capacity usually vary from system to system. Therefore, thcy should be detemiined fi•om lctual <br />operating history or desig» criteria of the system. <br />The other important consideiation for setting equitable rates for utility seivice is the <br />establishment of customer classes for cost distriUution after costs are allocated to servicc <br />fiulctioiIS. A customer class should include only those customers wbo; (a) are in similar location <br />in relation to the utility, (b) use the same or similar facilities of the utility, (c) receive similar <br />service froni tlle utility, and (d) place similar demands of the utility. It is important to note that <br />makeup of the customer class can change depending upon the particular asset that is being <br />allocated. A customer class that is appropriate for a]loeation of one type of cost, e.g., water <br />treatiuent costs, may includc customers that would nol be appropriate to the class when another <br />type of cost of assets is allocated, e.g., treated water distriUution costs. The objective of cost <br />allocation and ultimate distriUution to customer groups is to avoid cross-subsidizalion, and it is <br />important ivith that objective in view, differences iu service commitment and service <br />requirement be given fiil] consideration in deteimining customer classes. <br />G Ci(p oJPru•rs, Te.rns <br />6Yrne)- nnd VI'nsreirnrer Cost ojService Siudp <br />June 2010 <br />